Harman Ups Share Buyback

Shares of Harman International Industries Inc. (HAR) jumped 4.62% to close at $53.62 on Jun 27, 2013 after its board of directors announced an additional $200 million share buy-back program. The company already has $70.7 million left in the previous buy-back program, which was worth $200 million. The program was announced in Oct 2011.

Harman also announced that it will double its annual dividend payment to $1.20 for fiscal 2014. Harman will increase its quarterly dividend of 15 cents per share to 30 cents from the coming fiscal year. The company will pay the cash dividend on Sep 2013.

The shareholder-friendly move comes on the heels of strong third-quarter earnings reported by Harman. The company reported third-quarter earnings of 79 cents, which not only beat the Zacks Consensus Estimate by 16 cents but increased 6.8% from the previous-year quarter. The company’s earnings benefited from lower share count.

However, revenues decreased 3.1% year over year. The decline was primarily due to weak performance across Infotainment and Lifestyle segments. Macro-economic headwinds and slowdown in the automotive sector in Europe had a significant negative impact on Harman’s top line in the quarter.

During the quarter, Harman won a number of awards from customers such as Toyota (TM), Lexus, Kia, Mercedes and Ferrari. The company also upped its earnings forecast.

Year-to-date, Harman’s shares have jumped 16.9% compared to a 10.3% jump in S&P 500. In such a scenario, the additional share buy-back program and the scheduled increase in dividend will definitely boost shareholders’ confidence. As of Mar 31, 2013, Harman had cash and cash equivalents of $422.2 million and long-term debt of $262.6 million.

Moreover, the company expects its restructuring program to deliver $30 million – $35 million in annualized savings starting fiscal 2014. Apart from this, Harman’s new manufacturing capacities, growing product pipeline, solid patent portfolio, new awards as well as the launch of new products are expected to boost top line and profitability over the long term. Moreover, Harman continues to expand due to its partnership with companies like Apple (AAPL).

Meanwhile, Harman faces tough competition from Sony Corp. (SNE), which may hurt its profitability, going forward. We expect the stock to remain range-bound due to the sluggish macroeconomic environment, particularly in Europe in the near term.